Paulson Funds Struggle as Big Bets Backfire; Gold Works

Wall Street Journal

Prominent hedge-fund investor John Paulson, who runs the $38 billion Paulson & Co., has suffered sizable losses in recent weeks amid fresh worries about the global economy, pushing a key fund deep into the red for the year so far. Mr. Paulson’s $9 billion Advantage Plus fund lost more than 13% in the early part of this month, through June 10, leaving it down 19.65% for the year, according to two investors briefed on the performance. The Enhanced Partners fund, which had been a big winner this year, lost nearly 7% in the first 10 days of June, and now is up less than 4% in 2011, according to the investors. Those returns contrast with a year-to-date gain of about 1% for the average hedge fund, though Tuesday, according to data tracker HFR Inc.

One problem for Mr. Paulson: The recent collapse in shares of China forestry company Sino-Forest Corp. The timber company has tumbled 80% since late May, amid allegations by a short seller of questionable accounting, which the company has denied. That collapse has resulted in a paper loss of more than $500 million for Mr. Paulson’s firm, based on holding figures as of April 29 from FactSet Research. Paulson & Co. owned nearly 35 million shares of Sino-Forest, according to FactSet. The hedge-fund firm’s holdings of Sino-Forest represent more than 14% of the timber company’s shares outstanding and almost 1.5% of the hedge fund’s stock holdings, according to FactSet. A person familiar with the matter said the position hasn’t changed much since that filing.

Mr. Paulson, who gained fame and fortune during the 2008-09 global markets meltdown, also has been hurt by sizable holdings of financial stocks. Mr. Paulson scored a profit of $20 billion betting against subprime mortgages and financial shares in 2007 and 2008, by anticipating the housing collapse. He has been among the biggest bulls on banks and other financial companies over the past two years, resulting in sizable gains in 2009. But lately, as investors have dumped banks and other financial companies, Mr. Paulson’s holdings have resulted in losses. Mr. Paulson’s firm owned more than 41 million shares of Citigroup Inc. as of the end of March, according to securities filings, the firm’s third-largest stock holding. Bank of America Corp. was Paulson & Co.’s sixth-largest holding. Citigroup has dropped about 14% since March 31, while Bank of America has fallen about 21% in that period. It isn’t clear how many shares Paulson & Co. retains of those companies, but Mr. Paulson has told investors that he is still a believer in financial shares.

A spokesman for the firm declined to comment.

One Paulson wager that is working: gold. At the start of 2009, Mr. Paulson launched a fund to buy gold investments and has told investors that he placed a good chunk of his own money in gold. The yellow metal is up more than 7% so far this year.